The PIPX public IP licensing company stock index came back down to earth in the first quarter of 2017.

For Q1 the PIPX index was down 8.7% after being up 11.2% and 20.4% in Q3 and Q4 2016. This compares to an up 5.5% quarter for the S&P 500.

The change in value of the component companies over Q4, range from 61.4% for Wi-Lan (WILN) to -40.7 for Marathon (MARA), Xperi (XPER) (formerly Teserra) experienced a 23.2% decline in its share. Finjan (FNJN), whose market cap does not currently qualify it for the Index, and sells cybersecurity products as well as engages in patent licensing, was 54% in the quarter.

Fewer companies are now responsible for the bulk of the performance, as size becomes even greater factor in this capitalization-weighted index and as the value of some companies lags.

After outperforming the S&P 500 in Q3 and Q4 2016, Q1 saw the PIPX decrease, but not as dramatically as in previous quarters. The value of $1 invested in the S&P 500 in Q3 2011 would now be $1.76 while the value of the same $1 invested in the PIPX would be $0.69.

Q1, gains in RPX (RPXC), which named a new CEO, and Wi-Lan shares represented substantially all the positive movement in the index, and was heavily outweighed by large decreases in valuation at Acacia (ACTG), Rambus (RMBS),InterDigital (IDCC), and Xperi carrying the index to a substantial loss.

“InterDigital, Xperi, and Rambus continue to make up the lions share of the index because of their market cap,” said Dr. Kevin Klein, Vice President and GM of Products and Licensing at VORAGO Technologies, who compiled the IP stock performance data for IP CloseUp.

“These three companies accounted for 37% of the total value of the index at the inception in 2011, today they make up over 80% of the total value of the index. InterDigital alone now accounts for over 40%, up from 15% at inception.”

The PIPX public IP licensing company stock index soared to a 44.9% increase in 2016, led by an impressive 86.3% move for InterDigital.

With a market capital in excess of $3 billion, InterDigtal (IDCC) led the value weighted PIPX with another stellar performance. Poor performers for the year included Neonode (-27.3%, NEON), ParkerVision (-20.0%, PRKR) and VirnetX (-14.4%, VHC), who made less of a dent in overall PIPX performance because of their lack of market value. The S&P 500 stock index for the year was up 9.5%, a significant portion in the 4Q following November’s presidential election.

“For Q4 the PIPX index was up 11.2% after a remarkable 20.4% in Q3,” noted Dr. Kevin Klein, Vice President and GM of Products and Licensing at VORAGO Technologies, who compiled the IP stock performance data for IP CloseUp. “Pendrell underwent a reverse 1:10 split during Q4, as have several other of the smaller companies in the index, another example of the their shrinking share price and market capitalization.”

The imminent departure of President Obama, an advocate of weaker patents, and the election of Donald Trump, a strong supporter of proprietary content and brand, also may have had something to do with strong 4Q performance for the PIPX.

Despite the over all gains for year and quarter, Marathon (MARA) and ParkerVision were down 38.8% and 56.3% respectively in the 4Q, and were up 7.5% and down 20.0% for the year. Litigation developments were likely influences.

For both the year and 4Q, performance for InterDigital Tessera (TSRA) and Acacia (ACTG) accounted for all the PIPX gain and offset some of the losses from the smaller component companies.

“InterDigital, Tessera, and Rambus (RMBS) continue to drive the recent growth in the index and make up an ever-increasing share of the index,” stated Dr. Klein. “These three companies accounted for 37% of the total value of the index at the inception in 2011, today they make up over 80% of the total value of the index. InterDigital alone now accounts for over 40%, up from 15% at inception.”

Change in value of PIPX component companies 2011-2016

Five Years of Data

After more than five full years of tracking, the PIPX seems to be suggesting that a handful of strong IP licensing companies are getting stronger and the weaker (smaller) ones are becoming more volatile.

Public IP licensing companies (PIPCOs) are very much alive and some company shares are doing surprisingly well, despite increased obstacles to patent licensing.

PIPX reported a 20.4% gain for the 3Q vs. just 3.3% for the S&P 500.

It was the PIPX’s best performance since the index began tracking IP licensing companies in 2011. The PIPX is a capitalization-weighted, price-return measure of the change in value of this segment of publicly traded companies.

“InterDigital and Tessera, comparative giants in market value, were responsible for 20% of the index move,” said Dr. Kevin Klein, Vice President and GM of Products and Licensing at VORAGO Technologies, who compiles the data. “Acacia was the biggest individual gainer, up 48.2%; WiLAN was the biggest loser, down 39.4%. ”

High Volatility

It is difficult to attribute any one specific factor to the record quarter. However, PIPX has been volatile, and somewhat counter-cyclical since its inception. The index could be seen as a hedge against S&P 500 performance. Additionally, patent licensing and sales have started to come back, and patent damages awards are being paid, although at reduced amounts.

The Patent Trial and Appeal Board has been instituting fewer Inter Partes Reviews (down to about one-third of petitions filed), but is still seen by many as a somewhat arbitrary impediment to patent licensing and enforcement.

The value of $1 invested in the S&P 500 in Q3 2011 would now be worth $1.62 while the value of the same $1 invested in the PIPX would be $0.68.

PIPX Performance by Quarter

Added to the index is FORM Holdings (NASADQ: FH), a diversified holding company that specializes in identifying, investing in and developing companies with superior growth potential. Removed were Vringo, which was absorbed by FORM Holdings, and Unwired Planet, which was delisted on June 18.

After a record-breaking first quarter, public IP company shares (PIPCOs) under-performed most stocks versus the S&P 500 index in the second quarter.

Following a five-year leading return of 13.1%, vs. 0.8% for the S&P 500, the PIPX IP Sector Index of 13 patent licensing stocks fell in the second quarter -4.4% vs. a 1.9% gain the broader market index.

Bucking the trend was Marathon Patent Group (MARA), which was up 37.7% on settlement activity. Despite and increase in its shares of 16.1% in the second quarter, Acacia Research (ACTG) is rumored to be exploring combining with a pre-IPO business because of the difficult environment for patent licensing.

“Acacia may acquire a pre-IPO business, allow struggling IP business to wind down, former employees say.” reports the Patent Investor.

“The value of $1 invested in the S&P 500 in Q3 2011 would now be $1.57 while the value of the same $1 invested in the PIPX would be $0.56,” says Dr. Kevin Klein, who compiles the PIPX for IP CloseUp,”

The PIPX IP Sector Index is a capitalization-weighted, price-return measure of the change in value of this segment of publicly traded companies. This means that the performance of larger companies like InterDigital, Rambus and Tessera have a proportionately larger impact on overall index performance than swings in smaller public company shares followed.

In what some patent holders are hoping will be a harbinger of things to come, publicly traded IP licensing companies are enjoying an unusually strong second quarter.

Year to date performance for some of the key players include Marathon (MARA), up 40.62% as of the close of the market on May 17. This is as the S&P 500 performance has dwindled to a mere .16% YTD.

MGT Capital Investments (MGT) is up an astounding 1,704.35%, in part because cybersecurity pioneer, John McAfee, is about to be named CEO.

“Until recently, relentlessly negative information about patents and holders has been a challenge to patent licensing and sales activity,” one analyst observed.

“It may finally be hitting opcos and the courts that not only are there opportunities out there for amiable transactions that benefit all parties and avoid disputes, but an asymmetric market for patent transactions that depresses value is potentially very dangerous for everyone.”

Others performers were Inventergy(INTV), up 14.91%, Finjan (FNJN), ups 19.13% and WiLAN (WILN), which has risen an impressive 95.4% since January 1.

Not all PIPCOs have performed well. Stalwart RPX (RPXC) was down 17.82% and Spherix (SPEX) was down 24.56%.

Improving Conditions

The stock performance is a result of a diverse contributions, including $10 million in financing for Finjan, and $25 million settlement for Marathon from Apple.

Additionally, the courts have been ruling more favorably for patent enforcers, including increasing the likelihood of wilfulness. The Patent Trial and Appeal Board (PTAB) is showing some signs of acting more fairly, too.

Operating company patent acquisition activities have increased, too, in a sign that we may have hit a bottom and patent values will be creeping up if they have not already.

For a more complete list of PIPCOs and their recent performance, visit the IP CloseUp 30®here.

The eagerly sought bottom for publicly traded patent licensing companies may have been reached according to the data provided by an intellectual property index that tracks stock performance.

The PIPX public IP licensing index was up 13.1% vs. a barely positive 0.8% for the S&P 500 in the first quarter of 2016. This was the best quarter for the PIPX since it began tracking public IP licensing companies back in July 2011.

Rebound or Bounce?

Is this merely a “dead cat” bounce from PIPCOs (public IP licensing companies) having been beaten down over many quarters? Do the results reflect the relative strength of a few large players?

Or is the sector actually rebounding from over-correction which has devalued many good patents? From this observer’s perspective, it is too soon to tell.

The S&P has dramatically outperformed the PIPX since the IP index’s inception, almost five years ago, when patent values were at a record high. Exceptions have been the second and fourth quarters of 2014 (see graph below).

“The change in value of the component companies (below), ranging from +78.6% for Virnetx to -34.4% for Vringo,” said Dr. Kevin Klein, Vice President and General Manager of Products and Licensing at Vorago Technologies, a semiconductor company. “Parkervision (1:10) and Unwired Planet (1:12) had reverse stock splits this quarter. Vringo effected a reverse 1:10 stock split in Q4. Prices and valuations are adjusted to reflect these splits.”

Market Cap Weighted

The PIPX is a capitalization-weighted, price-return measure of the change in value of a segment of publicly traded companies. The performance of more highly valued companies, such as InterDigital (IDCC), Rambus (RMBS) and WiLAN (WILN) in the first quarterhad the greatest positive impact on the overall index. The PIPX was brought down less strongly by the poor performance of by Acacia, Neonode, Vringo and Unwired Planet, whose market cap have shrunk.

Many of those who follow PIPCOs do so in conjunction with the IP CloseUp 30®, a real-time index of individual company performance in this sector, which also provides up-to-the minute news and updates. Readers also can quickly find market capitalization information there. The URL can be copied and placed on your home screen or home page.

The PIPX index is designed to provide a measure of the market value, and hence a reading of the relative health of the publicly traded intellectual property licensing sector. The index consists of 13 companies with a primary focus of licensing and enforcement of patent intellectual property.

In addition to a focus on intellectual property, the companies must be publicly traded and have a market capitalization greater than $100M. Since being added to the index, the market caps of many of the companies have shrunk below $100M. The index was initiated with a value of 100 on July 1, 2011.

The PIPEX intellectual property sector stock index fell more than twice as much as the S&P 500 as the effects of the Alice and IPRs, in combination with a correcting stock market, came into play.

Rambus, while loosing 18.6% in the quarter, still has gained 6.4% Year-to-Date, largely as a result of excellent 1Q and 2Q performance. Tessera and InterDigital stock which performed well in 4Q 2014, has less steep YTD declines (see YTD graph below).

The PIPEX index was down 15.4% vs. the S&P 500 which was lost 6.9%, its biggest quarterly drop since 2011. Unwired Planet was up 17.7 % for the quarter and Acacia 3.5%. For the previous 12 months, Surprisingly, InterDigital and Tessera were the leaders for 12 months, up 27.1% and 21.9% respectively because of a strong 2014 4Q.

The PIPEX, provided exclusively to IP CloseUp by Dr. Kevin Klein, VP of Licensing for Freescale Semiconductor, is a “capitalization‐weighted price‐return measure of the change in value of this segment
of publicly traded companies.” The Index is designed to provide a measure of the market value and health of the intellectual property licensing business as a whole, while making it easier to identify individual performance. The stock performance of larger companies have a much more significant impact on the Index than those of the less highly valued. (See Fig. 4 weighting graph.)

The thirteen companies in the index are all publicly traded and at one time had a market capitalization of $100M or higher. Private companies such as Intellectual Ventures, Conversant and IPNav are not included, nor are struggling micro-caps like Inventergy. Fortress, which provides loans to patent holders and is part of a large financial organization, also is excluded.

Year-to-Date

Parkervision and Marathon shares are down the most YTD, 79.1% and 78% respectively. Marathon announced a merger with Uniloc on August 14, which current shareholders may see as a mixed blessing. Eight of the thirteen companies that make up the index saw 12 month declines >40%; four did YTD, indicating a possibly improving trend for shares of some companies.

Conclusion

It is difficult to say if PIPCOs have hit bottom yet and are ready to rise. Certainly, as they adapt to changes in patent law, recent court decisions and the PTAB, those with larger, well-vetted portfolios, cash and patience are in the best position to prosper. For better or worse IPRs and the PTAB are a fact of patent licensing life which these businesses must learn to contend.

The PIPX Index of 14 of the larger publicly held patent licensing companies rose by 2.1% for the second quarter 2015, beating the S&P 500 Index.

Similar to some other indexes, the PIPX is heavily weighted by the market value of those companies included, and was able to out-performed the S&P 500 Index, which was down .2% based on the leaders. The biggest movers for the 2Q were RPX, up 17.4% and Rambus up 15.2%.

Over the past four quarters or 12 months, Tessera is the biggest winner, up an impressive 72%. InterDigital was ahead 19%, while the 12 other companies in the PIPX were all either flat or down for the period, confirming the recent pressure on PIPCOs. The S&P 500 Index managed to move up 5.2%.

Equity investors seem to be telling patent licensing companies that they prefer company size, portfolio breadth and patent quality. Investors also appear to be gravitating to licensing businesses with more predictable cash flows, no easy feat after Alice and inter partes reviews.

For the full PIPX report, including performance dating back to July 1, 2011, just after the Nortel sale to Rockstar, go here.

Shares of public IP companies (PIPCOs) continued to fare poorly in the 2Q of 2015. The stock of companies with larger market capitalization tended to do better, and there were even a few whose shares were up significantly.

CopyTele (now Itus, stock symbol ITUS), $.14 was up 27.27%. (Could a name change make a difference? I guess maybe if the stock barely trades and has a market value of $1M.)

Pendrell (PCO), which was down as much as 30% and up 5% since May, finished the first half of the year just a shade under flat.

[For a snapshot of individual PIPCO performance, including recent news, and a look at how they compare to each other, visit the recently updated IP CloseUp 30, here.]

Bigger Players

Of the bigger players Acacia (ACTG), $8.11, was down 52.13%; and WiLAN (WILN), $2.23, was down 25.42%. WiLAN with $93M in annual revenues and $118M in cash, appeared to stand a good chance of weathering the storm. Its shares pay a 7.1% dividend.

On the plus side: RPX Corporation (RPXC), $22.57, was up 22.57% year to date; InterDigital at $56.30 gained 6.43%; Tessera (TSRA), $37.75 was up 5.56%; and Rambus (RMBS) at $13.89, advanced 25.25%.

Perhaps the most outstanding performer of the group is licensing/ operating company Universal Display Corporation (OLED). It stood at $51.17, up an amazing 81.84% YTD. The flat panel display and solid state lighting company has 3,500 worldwide patents and applications and licenses to many leading electronics sellers, including Apple. It was founded by Sherwin Seligsohn, who was founder and Chairman of InterDigital.

Deals in the Works?

In a quarter-ending column by Richard Lloyd that ran on the IAM blog he speculated that there could be some deals in works as some of these licensing business wind down. “This blog and others in the market have been predicting for a while that there will be some sort of shake-up of the PIPCO sector,” Lloyd wrote, “be it consolidation through mergers or asset sales. But so far any signs of that shake-up have been limited to an approach by Marathon to Spherix (which was rebuffed) and the merger between Internet Patents Corporation and Prism Technologies. But, thanks to the continuing tough conditions, are we now approaching the point where we will start to see heightened activity?”

Inventergy could be delisted from Nasdaq as its share price has remained below $1. It has applied for an extension to remain on the exchange for a further six months. Vringo, ParkerVision and Spherix have all been granted extensions to remain on the NASDAQ in the first half of 2015.

Challenges Ahead

It will not be easy for PIPCOs to be acquired or otherwise merged with stronger players, nor will it be easy for them to sell off assets. One prominent CEO told me that he has been approached by several PIPCOs but that he does not see much value in merging or in acquiring potentially undervalued public licensing companies, even for stock. “Numerous encumbrances involving the patents and relationships with capital providers would need to be sorted out, and, frankly,” he said, “few of the assets are worth it.”

Despite a soft first quarter 2015 for the 13 IP licensing company stocks that comprise the PIPX IP Stock Index, versus the S&P 500, individual winners and losers that bucked the trend.

Vringo (VRNG), down 80.9% over the past 12 months, was up 18.2% in the quarter one, the most in the group. Also advancing were Rambus (RMBS) was up 13.4%, Tessera (TSRA) 12.6%, Virnetx (VHC)10.9% and RPX (RPXC) 4.4%.

Unwired Planet (UPIP), Acacia (ACTG) and Marathon (MARA) were down, 43.0%, 36.8% and 31.0% respectively for the quarter. For MARA it came after a stellar 2014 where it gained some 170%, so some profit-taking is not unexpected. InterDigital (IDC) also cooled off after a torrid 4Q 2014.

*****

PIPX under-performance relative to the S&P 500 was more muted in the first quarter. This appeared to be less a result of improving performance among PIPX sector companies as a group, than improved performance among a handful of larger Index leaders (Tessera and InderDigital), whose weighting impacted overall results (see final graph). Vringo’s stock was beaten down significantly in the 2014 as the result of adverse decisions in court, so its gain is less impressive in relative terms. Its improved stock performance is either being considered by some investors as a positive harbinger, or the shares are enjoying a favorable bounce due more to traders than long-term investors.

The role of depressed patent values as a result of the American Invents Act, IPRs and proposed proposed additional anti-patent litigation legislation in poor PIPCO performance is difficult to determine. The likelihood is that investors are beginning to regard some companies as better capitalized and and more sufficiently equipped for the long hall, whatever the scenario.

Those larger players that appear to be in possession of sufficient numbers of good patents and licensing opportunities, appear to be the best position to perform over time.

*****

The PIPX Index, compiled exclusively for IP CloseUp by Dr. Kevin Klein, Director of IP Licensing at Freescale Semiconductor, is designed to provide a measure of the market value and health of the intellectual property licensing business. The index consists of 13 public companies all whose market capitalization exceeds $100M, whose primary focus of licensing and enforcement of patent intellectual property. The companies included in the index are listed in Table 1. Several of the companies’ market capitalization has fallen below $100M since being added to the index.

“The PIPX index starting from July 2011 through March 31, 2015,” says Dr. Klein. “Somewhat surprisingly, given the amount of interest and attention provided to IP licensing in recent years, the index trends down from July 2011 to about the middle of 2012 and from there has been relatively flat. This performance stands in contrast to that of the broader economy and of publicly traded companies in general.”

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About Bruce Berman

I'm a long-time intellectual property observer, adviser and editor, who is in close close contact with the leading holders and most influential people. I track the latest trends and developments, and monitor patent and other IP transactions, strategy and performance.

Since 1988 I have been working with IP holders, managers, lawyers and investors to properly explain the importance of their assets to key audiences, frame disputes and convey transactions.

My five books, including the IP best-seller FROM IDEAS TO ASSETS, deal with IP rights as business assets. THE INTANGIBLE INVESTOR, the column I have been writing for IAM Magazine since 2003, looks at ways IP rights impact stakeholders. For my complete bio visit www.brodyberman.com or click on the link below.